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AT&T's proposed acquisition of T-Mobile USA was driven in large part by the quest for radio spectrum, a commodity that rarely crosses the minds of mobile consumers but plays a big role in carriers' decision-making.

The US$39 billion deal, announced Sunday but still awaiting regulatory approval, would create the biggest mobile operator in the U.S., with about 130 million subscribers. It would also allow AT&T to expand its planned LTE (Long-Term Evolution) footprint by an additional 46.5 million U.S. residents, bringing the fast 4G cellular network to 95 percent of the country's population, according to the companies.

Spectrum is the lifeblood of wireless networks, because the wider a band of frequencies a network can use, the more speed and capacity it can deliver to users. That makes it a highly sought-after resource. The need for spectrum has fueled battles among TV broadcasters and mobile operators. It has also contributed to many of the big mergers in the mobile business, including the complex relationship between Sprint Nextel and WiMax operator Clearwire, which formed a new company so they could pool spectrum in the same band.

In the case of AT&T and T-Mobile, both carriers say they face impending spectrum exhaustion without some new arrangement. That danger is real, especially for T-Mobile, and for AT&T in areas such as California, according to analyst Phil Marshall of Tolaga Research. Pooling its spectrum with T-Mobile's could help AT&T solve the data crunch that has led to complaints about iPhone performance in some cities, and give T-Mobile a path to LTE, Marshall said.

But more than that, the larger pool of spectrum could give the merged carrier an advantage against rivals such as Verizon Wireless in introducing faster services, he said.

Consumers might not see the full benefits of AT&T's expanded spectrum for two years or more, but buying T-Mobile was the fastest way to get hold of the additional resources, according to John Stankey, president and CEO of AT&T Business Solutions.

"It lets us get more spectral capacity in the market sooner than any other industry alternative," Stankey said.

Both AT&T and T-Mobile have accumulated frequencies over the years from various auctions of regional spectrum licenses. Their spectrum holdings vary from city to city, but Marshall estimates that AT&T has between 85MHz and 90MHz of total spectrum, on average, across the country. T-Mobile has between 50MHz and 55MHz, he said. So, assuming it isn't forced to divest some licenses, the combined company would have between 135MHz and 145MHz in an average city.

That would put the new carrier far ahead of both Verizon (with 85-90MHz) and Sprint (with 50-55MHz) in an average market, according to Marshall's estimate. Only Clearwire, with 120-150MHz, might rival the combined company in some areas. And Clearwire lacks the capital to take advantage of that spectrum.

If the acquisition is approved and AT&T takes control of T-Mobile, it plans to consolidate the 3G traffic of both carriers into a frequency band around 1900MHz. This will free up their AWS (Advanced Wireless Services) frequencies for LTE, Stankey said. Combining the AWS spectrum with some of T-Mobile's frequencies will create a band 20MHz wide that can be used to bring LTE to many rural and suburban areas, he said.

Meanwhile, AT&T's spectrum in the 700MHz range, which is prized for long reach and good in-building penetration, exists mainly in cities and will be used for LTE there, the company said. AT&T also continues to pursue an acquisition of a band in the 700MHz range that Qualcomm has used for its FLO TV service.

The scarcity of spectrum is in some ways a question of timing, according to Stankey and others in the industry. Though carriers may have enough spectrum to build out their networks over the next few years, there is a need for urgent action to make more frequencies available because it can take 10 years or more to translate spectrum into services, said Charla Rath, vice president of policy development at Verizon Wireless, who spoke on a panel before the CTIA trade show on Monday.

For spectrum-rich Clearwire, the T-Mobile-AT&T deal is bad news in the short term because it momentarily satisfies the need for spectrum at two carriers who were in need of it, Marshall said. But the market for spectrum in the medium and long term is still strong, he said.

AT&T sees a need for more frequencies in the future to meet explosive growth in demand for mobile data over the coming years. The carrier's mobile data volume has grown 8,000 percent in the past four years, and the 2010 demand is expected to grow by eight to 10 times by 2015, according to AT&T Chairman and CEO Randall Stephenson.

"There's just going to be a constant need for additional spectrum," Stephenson said.